Behavioral Finance II

Catalog description

The traditional framework for thinking about financial markets assumes that all market participants are fully rational. The past four decades have seen the emergence of an important new paradigm, behavioral finance, which argues that many financial phenomena are the result of less than fully rational thinking. Behavioral Finance Part I and Part II collectively provide a comprehensive discussion of the field. Specifically, we organize our discussion along two dimensions: a “column” approach and a “row” approach. The column approach focuses on discussing market phenomena that cannot be explained by the traditional framework; for each phenomenon, we discuss potential psychological biases that can make sense of it. The row approach focuses on discussing psychological biases that humans exhibit; for each bias, we discuss a range of market phenomena that it can explain.